Chapter 3: High inequality undermined the efficacy of growth in reducing poverty

Key messages

The transformation of growth to poverty reduction is nonlinear, with inequality playing an important role. A combination of high initial inequality since colonial times and more recent patterns of structural change have made Africa one of the most unequal continents in the world. This matters because the poverty reducing impact of growth depends on initial income distribution and its pattern of change, which is also influenced by globalisation and national development strategies.

Countries’ ability to translate growth into poverty reduction depends on differences in the magnitude of growth itself and the sectoral composition of that growth. Declining agricultural activity and pro-ductivity, a non-expanding manufacturing sector, and a large informal sector hinder growth and its impact on poverty reduction. The current pattern of structural change, which tends to shift labour from agriculture to low-paying informal service sectors, has not helped in lowering Africa’s inequality.

The evolution of inequality depends on both changes in the pattern of demand for labour and changes in the structure of labour supply, particularly with regard to education characteristics. The equalizingeffect of education has been curtailed by limited availability of physical capital to complement Africa’s increasing and improving quality labour force. Major barriers to reducing inequality seem to stem largely from poor governance and fragmentation along ethnic and linguistic lines. Inclusive institutions are required.

An inclusive structure of growth, anchored on employment and resulting in more equal distribution of opportunities and income, would not only reduce poverty but would also set the stage for accelerating future growth. Pro-poor growth and pro-growth poverty reduction interventions should be used together to achieve this. Priorities to target include: Job creation, preferably in the formal sector, to absorb rural migrants productively; Infrastructure development in rural areas to increase farmers’ access to markets; Interventions that improve agricultural productivity for the poor; and, Measures and institutions that contribute to reducing inequality, such as the adoption of inclusive social protection and labour schemes. If well designed, from growth and also contribute to improving growth.